Stacking up Tata Motors against M&M

Tata Motors and M&M are similar in many ways. Both are home grown Indian companies that started their journey in 1945. They both have focused strongly on diesel engines, started with rugged vehicles, have a good following of commercial customers like taxi operators etc. And both are now shifting their focus to woo sophisticated urban consumers. Both have gone for international acquisitions. Both are trying to build a broad portfolio of automotive businesses. Tatas have truck, buses, passenger vehicles from Nano to JLR. The UV specialist M&M is straddling two-wheelers, cars, tractors and E-vehicles.

But the way the two companies have charted out their trajectories – the two are also very different in many ways. Here are four broad ways in which the two companies are not similar:

Their business portfolio: Tatas are broad spectrum player – having presence from CVs to PVs. They started their automotive journey with commercial vehicles making trucks and buses in India and then entered the passenger vehicle business.

M&M is a focused company, Pawan Goenka of M&M says it M&M wants to be known as the SUV company in the world. While starting in the 1940s with the import of Willys Jeep, it has diversified into many businesses like tractors, two-wheelers, cars but despite all that it has remained sharply focussed on the UV segment.

Chasing ambitions and dreams:

Both M&M and Tata Motors harbor global ambitions. Led by the chairman Ratan Tata, passionate about the automobile business, Tata Motors (Telco then) has always believed in making big bets – may it be Indica, Nano. It went for a mega acquisition ($2.3 billion) of the upmarket JLR in 2008. The initial ride was bumpy and weighed heavy on the company. But now, as its India business suffers, it’s the international business – primarily JLR – that has come to its rescue.

M&M has been more modest and focussed. While initially in the race for JLR, it backed out lacking financial and risk appetite for such a big deal and instead later acquired the struggling South Korean SUV specialist Ssangyong for $470 million.

JLR vs Ssangyong:

The nature of their acquisitions has been such that it has a bearing in the way they have been integrated within the two groups. Top-end focussed JLR has largely been a separate global entity with negligible operational collaboration with Tata Motors that has Indica and Nano in its portfolio. In that sense while JLR has brought to Tata Motors an iconic top notch brand, global footprint and significant contribution to it topline and bottomline, it hasn’t done much to beef up its product line-up and depth in India.

In contrast, Ssangyong is being better and more deeply integrated with M&M. Beyond launching its model Rexton in India, M&M is leveraging it to develop three new platforms and six engines over the next four years and is investing $900 million. Says professor and global strategist Pankaj Ghemawat: “My impression of Tata-JLR is that sharing opportunities between the two is pretty limited. Tata Motors has an issue and the last thing you want to do is to force commonality with JLR. (In contrast) Ssangyong is critical for M&M to refresh products and develop new models.”

Leaders and their leadership:

Who heads the two companies and their chairmen understandably has had a significant bearing. Tata Motors, led by a hands-on Ratan Tata has been able to take risks and make big bets with projects like Nano and JLR but not without its side effects. Over the last decade, it has more frequent changes including V Sumantran, Carl-Peter Forster, Ravi Kant and P M Telang.

The transitions at M&M have been more stable with a relatively hands-off chairman in Mahindra who hired Goenka – who was working with GM in Detroit then – in 1993. Since then, Goenka and his core team have steadily risen up the ranks to head its automotive business today.

Vetting the model:

So how do the two trajectories stack up?

Amid intensifying competition both are facing MNC onslaught and are losing market share. Tata Motors market share in the Indian passenger vehicle business has steadily dipped from 16.44% in 2006-07 to almost half today at 8.67%, according to Frost & Sullivan. M&M’s share of the UV pie has slipped from 55.59 per cent in 2011-12 to 45.98 per cent in the first quarter of 2013-14. Both of them have to work very hard on quality, product pipeline, service and their brand to lure customers, says Mohit Arora of J D Power.

But as of today, M&M – despite its smaller footprint, modest aspirations and focused presence – seems better equipped for the future. Mahantesh Sabarad, senior VP (equity research), Fortune Equity Brokers says if one takes a decadal view, M&M has outperformed Tata Motors on shareholder return. Arora of J D Power adds that M&M is not only focussed product wise but also management bandwidth wise. “There is a sense of ownership you see in the company. It is an overdriven organization,” he adds. They have also done a good job branding and pricing their products.

Relatively, the Tatas have fared poorly. “They lost too much time and effort in fixing Nano. To the extent it blindsided them in investing in other products,” says V Ramakrishnan, MD, Frost & Sullivan. Besides its poor sales, its ‘cheapest car’ tag has done a big damage to the Tata brand, experts say. Tatas have to figure out what they want to be about. Adds Arora: “In an attempt to do too many things Tatas are getting nothing right. You cannot compete with Safari and Sumo when you have EcoSport and Duster.”

But to think that M&M, in a relative sense, is in safe territory would be a folly. While they have progressively improved on product, styling, quality between Scorpio and Xylo, they have a long way to go. In an industry known for deep pockets, long development cycle and technology as a differentiator, niche players have found their hands often constrained. M&M too has a tough task ahead.

Looking ahead:

The good news is that they both realise they have a problem to fix.

Tata Motors has already rolled out a plan. “Karl Slym may or may not be a good CEO. But he is certainly an empowered CEO which makes a difference,” says Deepesh Rathore, who till recently was the director at IHS Automotive in India. Right now, the Tatas are undertaking a lifesaving exercise – they are shifting Tata Motors to the ICU and stabilise things. Soon they need to go for surgeries and make some tough calls, says Rathore.

With a new group chairman in Cyrus Mistry, and a new MD in Karl Slym (appointed in 2012), Tata Motors is readying its battle plans. Mistry acknowledged the big challenge the company faces – fierce competition. Seven new global carmakers came to India in the past four years and the domestic industry saw 150 new launches, he said in his recent annual address. The company has been slipping on all fronts – sales, market shares, profitability and brand perception in India.

It is working on them. Recently, it launched eight new refreshed products across five platforms. Communicating through its media agency The company plans to continue playing across segments – from mini, small, compact, SUV, MPVs. It will bring in vehicles in segments that have grown in recent years and where it currently does not have products – for instance, the soft-roader. It is working on alternate fuels, hybrids and e-vehicles. With JLR in the stable, it is also eyeing the luxury car segment. To achieve all this, Tata Motors has committed to investing close to Rs 3,000 crore annually in capex for the next few years.

The company is also tackling the other big challenge that Mistry did not articulate in his address – the internal issues. Led by Slym, the organization is being overhauled. For example, the old management committee has been replaced with a new leaner executive committee with eight members. Many functions are being restructured to organizational efficiencies and better exploitation of group synergies. For example, earlier, each Tata Motors’ plant had its own quality and purchase heads leading dispersed and inconsistent decision making. Now it has just one quality and purchase heads for the company who has visibility across plants.

M&M too is gearing up. Recently, after acknowledging that its dominance in SUV segment may be under threat with rising competition, it launched Verito Vibe, the compact version of its sedan. “Since product development cycle takes four years any reaction we may have to the new launches won’t happen before four years,” admits Goenka. But it is optimistic. In five sub-segments of the UV market (entry-level SUVs, crossovers, MPVs and premium SUVs), Goenka promises to be in the leadership position in at least three of them. To do that it will lean heavily on Ssangyong and is investing $900 million over the next four years to develop three new platforms and six engines.

It is also making an all-out effort to boost its customer and sales satisfaction rating. While M&M fares lot better – JD Power’s Customer satisfaction index (CSI) ranking 5 and sales satisfaction index (SSI) ranking 6 – than Tata Motors (CSI ranking 11 and SSI ranking 12). But it has a lot of work to do. “Our target is to become no 1 in CSI and SSI study and we are working on all fronts to do that,” says Goenka.Simultaneously, M&M is scouring the global markets to grow its sales, mostly emerging countries like Chile, South Africa and Sri Lanka where it is eyeing at least 5% marketshare in the UV segment. Goenka is also looking at boosting exports, currently around 10% to a minimum threshold of 30%.